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Article
Publication date: 20 September 2019

Mitchell Roznik, Milton Boyd, Lysa Porth and C. Brock Porth

The purpose of this paper is to examine factors affecting the use of forage index insurance. Forage is a difficult crop to insure, and index insurance may be well suited…

Abstract

Purpose

The purpose of this paper is to examine factors affecting the use of forage index insurance. Forage is a difficult crop to insure, and index insurance may be well suited for forage insurance and has been implemented in several countries, including Canada, the USA and France. Despite being a promising risk management tool, forage index insurance participation rates in Canada, and other countries are low relative to crop insurance participation rates for grain and oilseed producers.

Design/methodology/approach

A survey was conducted with 87 beef and cattle producers from Alberta and Saskatchewan, Canada. A probit regression model was used, and a number of variables were included to examine the use of forage index insurance.

Findings

In total, 6 of 11 variables in the model are found to be statistically significant in explaining forage producers’ use of forage index insurance. Results suggest that producers who maintain lower feed reserves are more likely to purchase forage index insurance. Also, producers with higher levels of knowledge of crop insurance and a more positive attitude toward forage insurance are more likely to use forage index insurance. Furthermore, producers are more likely to use forage index insurance if they perceive drought and weather risk as being of greater importance, and if they are younger. The importance of the variable forage index insurance premium price was statistically insignificant. This could be due to the effect of subsidization, reducing the importance of price for the decision to purchase. Similarly, the use of other subsidized risk management policies, including a whole-farm margin policy (e.g. the government program and AgriStability), did not reduce forage index insurance use. A possible explanation for this is that the subsidization of the policies may make it profitable to purchase both, despite the overlapping coverage.

Practical implications

These results may be useful for policy makers interested in increasing forage index insurance participation rates, as forage index insurance participation rates have historically been low relative to grain and oilseed producers.

Originality/value

This study is believed to be one of the first studies regarding the use of forage index insurance by forage producers. Producers can be exposed to catastrophic risks such as drought or other extreme weather events, and forage index insurance may be an effective means to manage these risks. Index insurance determines payments using an index that is correlated to producers’ actual yields. A downside of this method is basis risk, which is the mismatch between the insured index and the producer’s actual yield. Research has focused on basis risk and developing improved methods to reduce basis risk. However, less research has investigated the other important factors that may contribute to forage index insurance use. Producers may have a different risk management environment regarding forage production compared to other farm activities, and these differences have largely not been examined.

Details

Agricultural Finance Review, vol. 79 no. 5
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 22 November 2011

Milton Boyd, Jeffrey Pai, Qiao Zhang, H. Holly Wang and Ke Wang

The purpose of this paper is to explain the factors affecting crop insurance purchases by farmers in Inner Mongolia, China.

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Abstract

Purpose

The purpose of this paper is to explain the factors affecting crop insurance purchases by farmers in Inner Mongolia, China.

Design/methodology/approach

A survey of farmers in Inner Mongolia, China, is undertaken. Selected variables are used to explain crop insurance purchases, and a probit regression model is used for the analysis.

Findings

Results show that a number of variables explain crop insurance purchases by farmers in Inner Mongolia. Of the eight variables in the model, seven are statistically significant. The eight variables used to explain crop insurance purchases are: knowledge of crop insurance, previous purchases of crop insurance, trust of the crop insurance company, amount of risk taken on by the farmer, importance of low crop insurance premium, government as the main information source for crop insurance, role of head of village, and number of family members working in the city.

Research limitations/implications

A possible limitation of the study is that data includes only one geographic area, Inner Mongolia, China, and so results may not always fully generalize to all regions of China, for all situations.

Practical implications

Crop insurance has been recently expanded in China, and the information from this study should be useful for insurance companies and government policy makers that are attempting to increase the adoption rate of crop insurance in China.

Social implications

Crop insurance may be a useful approach for stabilizing the agricultural sector, and for increasing agricultural production and food security in China.

Originality/value

This is the first study to quantitatively model the factors affecting crop insurance purchases by farmers in Inner Mongolia, China.

Details

China Agricultural Economic Review, vol. 3 no. 4
Type: Research Article
ISSN: 1756-137X

Keywords

Abstract

Details

China Agricultural Economic Review, vol. 3 no. 4
Type: Research Article
ISSN: 1756-137X

Article
Publication date: 5 May 2015

Jia Lin, Milton Boyd, Jeffrey Pai, Lysa Porth, Qiao Zhang and Ke Wang

The purpose of this paper is to explain the factors affecting farmers’ willingness to purchase weather index insurance for crops in China, in the Province of Hainan, and…

Abstract

Purpose

The purpose of this paper is to explain the factors affecting farmers’ willingness to purchase weather index insurance for crops in China, in the Province of Hainan, and to also provide additional background information on weather index insurance.

Design/methodology/approach

A survey of 134 farmers was undertaken in Hainan, China, regarding their willingness to purchase weather index insurance. A probit regression model was used, and a number of variables were included to explain willingness of farmers to purchase weather index insurance.

Findings

In total, 11 of 15 variables in the model are found to be statistically significant in explaining farmers’ willingness to purchase weather index insurance.

Research limitations/implications

First, farmers’ interest in weather index insurance may be limited due to basis risk. Second, some farmers may not sufficiently understand weather index insurance and so may not purchase it, and a considerable portion of farmers may also require a subsidy if they are to purchase weather insurance.

Practical implications

Weather index insurance may provide a lower cost alternative than traditional crop insurance, however, basis risk remains a main challenge.

Originality/value

This is the first study to quantitatively study the factors affecting the willingness of farmers to purchase weather index insurance for agriculture in the province of Hainan, China.

Details

Agricultural Finance Review, vol. 75 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 26 July 2013

Milton Boyd, Jeffrey Pai and Lysa Porth

The purpose of this research is examine the development of livestock mortality insurance, and associated challenges, in order to provide an improved understanding…

673

Abstract

Purpose

The purpose of this research is examine the development of livestock mortality insurance, and associated challenges, in order to provide an improved understanding regarding the operation of livestock mortality insurance.

Design/methodology/approach

In a many countries, livestock mortality insurance has been either unavailable or underdeveloped. A descriptive analysis is provided regarding the background and development of livestock mortality insurance, along with an example.

Findings

Livestock mortality insurance is considerably more complex than crop insurance, and some of the complexities of livestock mortality insurance include multi‐stage production, consequential losses, occasional large event losses, animal health management, moral hazard, and adverse selection.

Originality/value

This study provides background and development information regarding livestock mortality insurance, and also highlights a number of important differences between livestock mortality insurance and crop insurance.

Details

Agricultural Finance Review, vol. 73 no. 2
Type: Research Article
ISSN: 0002-1466

Keywords

Content available
Article
Publication date: 5 May 2015

Assistant Professor Lysa Porth and Professor ßKen Seng Tan

15

Abstract

Details

Agricultural Finance Review, vol. 75 no. 1
Type: Research Article
ISSN: 0002-1466

Article
Publication date: 22 November 2011

Linging Hou, Dana L.K. Hoag and Yueying Mu

The purpose of this paper is to examine the efficiency of current subsidized crop insurance products (SCIPs) in Miyun county, in northern China, by testing the existence…

Abstract

Purpose

The purpose of this paper is to examine the efficiency of current subsidized crop insurance products (SCIPs) in Miyun county, in northern China, by testing the existence of adverse selection.

Design/methodology/approach

The authors examine the efficiency of SCIPs from a farmers' point of view by testing the existence of adverse selection using nonparametric tests and logit regression on data from individual interviews in Miyun County. Due to adverse selection, producers with more risk should be more likely to buy crop insurance in pursuit of the benefits from SCIPs.

Findings

However, both methods conclude no existence of adverse selection, which indicates that the programs are inefficient. This may not be surprising based on the issues of concern cited above. The opportunities and challenges of a growing interest in weather index insurance are discussed toward the end of the paper.

Originality/value

This paper weaves together literature on traditional and weather index insurance, along with primary data from a survey, to examine the pros and cons of each type of insurance. Implications for policy makers are to compare the tradeoffs between concerns of the two types of insurance examined here, traditional and weather index insurance. Ultimately, the political goals might best determine which option is most desirable.

Details

China Agricultural Economic Review, vol. 3 no. 4
Type: Research Article
ISSN: 1756-137X

Keywords

Article
Publication date: 11 May 2010

Jeffrey S. Pai and Milton S. Boyd

In the USA, private insurance companies serve as an integral part of the delivery and risk sharing of the federal crop insurance program. Governed by the Standard…

Abstract

Purpose

In the USA, private insurance companies serve as an integral part of the delivery and risk sharing of the federal crop insurance program. Governed by the Standard Reinsurance Agreement (SRA), private crop insurance companies must designate an eligible crop insurance contract to the assigned risk, developmental, or commercial funds. While the SRA restricts the private sector delivery system in a number of ways, the assignment of contracts to crop insurance funds, however, is left solely to the discretion of individual crop insurance companies. Thus, as to the companies' profitability viewpoint, the optimal selection of the crop insurance funds is the most important task. Therefore, the purpose of this paper is to provide a decision framework for crop insurance companies to make optimal decisions regarding the purchases of crop reinsurance. This information and framework may also be useful for crop insurance firms in China when considering crop reinsurance decisions.

Design/methodology/approach

The paper studied three commonly used parametric loss distributions and presented a general guideline to choose the most profitable fund within the company's risk bearing level.

Findings

The paper finds many important features in the commonly used loss distributions, which are useful to maximize the company's underwriting returns.

Originality/value

The paper provides a general decision framework for optimally ceding risks to reinsurance. While this paper focused on agricultural insurance decisions by firms, the concept could be applied to general reinsurance decisions.

Details

China Agricultural Economic Review, vol. 2 no. 2
Type: Research Article
ISSN: 1756-137X

Keywords

Article
Publication date: 22 November 2011

Rong Kong, Calum G. Turvey, Guangwen He, Jiujie Ma and Patrick Meagher

China frequently suffers from weather‐related natural disasters and weather risk is recognized as a source of wide‐spread systemic risk throughout large swaths of China…

1051

Abstract

Purpose

China frequently suffers from weather‐related natural disasters and weather risk is recognized as a source of wide‐spread systemic risk throughout large swaths of China. During these periods farmers' crops are at risk and for a largely poor population few can afford the turmoil to livelihoods that goes along with drought. The purpose of this paper is to investigate the willingness of Shaanxi and Gansu farmers to purchase weather insurance.

Design/methodology/approach

This paper is based on surveyed results of 890 farm households in Shaanxi and Gansu provinces. The survey was designed specifically to extract willingness to pay for weather insurance. Factor affecting willingness to pay are explained using linear regression.

Findings

The authors find strong evidence that the demand for drought insurance is downward sloping and also believe from the analysis that the demand is fairly elastic. This suggests that price matters and the results suggest that in order for wide spread adoption of weather insurance farmers will require a substantial premium, perhaps in the order of 80 per cent, as is being applied to current crop insurance initiatives. The authors find, as expected, that crop producers would be willing to pay more for insurance than livestock producers, but also find, as one would expect, that the key indicator is risk. Using a Pert distribution, the authors constructed from information gathered from farmers the expected values and standard deviations of gross revenues and yields of the most prominent crop and constructed the coefficient of variation. It was found in both cases that the higher the CV the greater the willingness to pay.

Originality/value

The authors believe that this is the first willingness‐to‐pay study of weather insurance uptake in China. The authors used a unique “experimental” design and investigation technique to determine weather insurance demand.

Details

China Agricultural Economic Review, vol. 3 no. 4
Type: Research Article
ISSN: 1756-137X

Keywords

Article
Publication date: 22 November 2011

Shiwei Xu, Yumei Zhang, Xinshen Diao and Kevin Z. Chen

The purpose of this paper is to develop a dynamic computable general equilibrium (DCGE) model to analyze economy‐wide impacts of different types of public spending in…

4273

Abstract

Purpose

The purpose of this paper is to develop a dynamic computable general equilibrium (DCGE) model to analyze economy‐wide impacts of different types of public spending in China. A particular focus is placed on their impacts on food economy.

Design/methodology/approach

In this paper, DCGE model is developed to analyze economy‐wide impacts of different types of public spending in China. The effects of increased agricultural subsidies, agricultural R&D, and irrigation are simulated by using China DCGE model.

Findings

The results show that public spending has significant impact on food production, price, and trade. The increased public spending on agricultural R&D, irrigation, and agricultural subsidy also has modest impacts on other sectors such as industry, service, and GDP growth.

Originality/value

The paper constructs the China dynamic CGE model and analyzes economy‐wide impacts of different types of public spending in China, especially for the food economy.

Details

China Agricultural Economic Review, vol. 3 no. 4
Type: Research Article
ISSN: 1756-137X

Keywords

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